The days of The men in suits shouting orders on the bustling floors of the stock exchanges have mostly disappeared, replaced by windowless rooms full of waiters, but the stock exchange is still a bustling place. Of the 13 U.S. exchanges combined, approximately 50 million transactions take place every day. And yet, there is another digital marketplace that deals with dozens of billion of daily transactions, the complexity of which makes NASDAQ look like a lemonade stand: online advertising.
It may seem strange to call advertising a market, but it is. Industry-specific terminology provides a clue: publishers who sell ad space and advertisers who buy it do business on what are called “ad swaps”; one of the biggest companies involved is called the Trading Desk. Every time you load a web page, advertisers compete in an automated process called real-time bidding to show you their ad. Multiply that by billions of internet users around the world, loading many different pages and applications per day, and you can start to appreciate the reach. As antitrust specialist Dina Srinivasan explains, article to be published, online advertising “is probably the most sophisticated of all electronic trading markets”. And yet, despite the size and complexity of the market, and unlike other markets, online advertising is largely unregulated.
A former head of digital advertising, Srinivasan caught the eye last year for her article “The Antitrust Case Against Facebook,” which exposes a new theory as to why Facebook’s market dominance can be bad for users even though it offers a free product. Now she wants to do something similar for Google, especially for the vast advertising empire that accounts for the vast majority of the company’s revenue. In his new article, which will be published in the Stanford Technology Law Journal, Srinivasan delves deep into the inner workings of the digital advertising market. The details are incredibly complex, but the general argument is simple. When you see an ad online, chances are very high that the advertiser used Google to buy it, that the website used Google to list the space, and that the Google Stock Exchange matched them. In other words, Google manages both the largest exchange and competes as the biggest buyer and seller on that exchange. On top of that, it also owns YouTube, one of the biggest ad inventory providers, which means it competes with publishers on its own platform. And yet, there is no law governing all of this.
This regulatory vacuum, Srinivasan argues, has allowed Google to dominate the industry by doing things that are prohibited in other parts of the economy. “In the electronically traded equity market, we demand that exchanges provide traders with fair access to data and speed, we identify and manage intermediary conflicts of interest, and we demand trade disclosures to help control the market.” She writes. His proposal follows naturally from this observation: to apply these regulatory principles to digital advertising.
The resemblance between securities and advertising markets first emerged in Srinivasan in 2014. This is when Michael Lewis posted Flash Boys, which documented the massive harms created by high-frequency trading and other modern tricks of the digital securities market – and which helped spark a wave of investigations, fines and regulatory action. At the time, Srinivasan saw similar problems arising in its own industry.
“When Flash Boys came out, it was funny. This book moved from executive to executive, ”she said in an interview. “People would laugh at the way there were agents who also arbitrated between advertising exchanges. People didn’t care about parallels. “
Over the past year, as she researched the article, Srinivasan realized that the resemblance went even deeper than she thought, sometimes strangely. Lewis describes high-frequency traders seeking an advantage by placing their computers as physically as possible on the exchange’s servers to reduce trading times by microseconds. Srinivasan tells a similar anecdote from the ad tech world: Last year, OpenX, one of the largest non-Google ad tech companies, ad a five-year, $ 110 million deal to move its exchange to Google Cloud. OpenX was open to the fact that being on Google’s servers would give it a speed advantage. “You must operate in a fast, efficient manner, close to the publisher and to Google’s request”, an executive said. This is almost an exact copy of the tactics of high speed traders. The difference, Srinivasan notes, is that “in financial markets, co-location practices are strictly regulated” to ensure everyone has equal access at speed. In advertising, they are not.